Updating your FutureWise TDF to include private assets

There is currently a lot of change in the UK pensions, which is creating exciting new opportunities for pension savers. With this in mind, we designed our FutureWise strategy to be easy to develop, so we can keep it up to date and help our members benefit from new investment potential whenever we identify it. Thanks to a recent change in regulations, we can now include ‘private assets’ in FutureWise, which we believe will enhance its growth potential and risk management.

Private assets are investments that are bought and sold privately rather than on stock exchanges. Over the long term, we believe they will produce higher returns than many other types of investments – though, of course, this is not guaranteed.

Examples of private assets include:

• property (mainly commercial buildings, such as offices, warehouses and shopping centres)
• infrastructure (big developments, such as roads, power generation, hospitals and schools. These can support communities and drive wider growth)
• private equity (buying companies or stakes in private companies)
• private credit (providing private loans to businesses)

If you’d like to know more about private assets, including what they are and why we think they are an exciting investment opportunity, please watch our video.

Private assets can also be called ‘illiquid assets’, as the way they are traded means they tend to be harder to buy or sell than more traditional pension investments such as stocks and bonds. There may even be times when they are difficult or impossible to sell for a period. This could lead to significant changes in their value, which would affect the value of your pension.

However, we have carefully considered these risks before making private assets available through FutureWise. We intend to limit these risks by investing in a wide range of different private assets (a ‘diversified’ selection) to ensure greater flexibility and risk management. We also don’t hold private assets in FutureWise when members are closer to their target dates.

We have created a new fund called the Fidelity Diversified Private Assets Long-Term Asset Fund, which can invest in different types of private assets. We know it has quite a long name, so for simplicity we also call it our LTAF. It aims to provide access to the best private asset opportunities across the market.

FutureWise is the default investment option for your workplace pension. This means it is where your money will be invested if you don’t choose where to invest it yourself. FutureWise follows what’s called a ‘Target Date Fund’ strategy, which means your savings are invested in a fund that is carefully managed towards a target date in the future. The funds currently range from 2025 to 2070, with dates every five years and your money is invested in the fund that aligns most closely with your ‘selected retirement age’ currently shown in PlanViewer.

Each fund aims for higher growth when it is a long way from the target date, investing in investments such as company shares. Then, at a set number of years before its target date, the fund will start gradually moving some of its assets out of company shares and into investments focusing on generating an income such as bonds. This is to prepare for income drawdown in retirement.

Please log in to PlanViewer to see the investments in your workplace pension.

We are only including private assets in FutureWise funds that are a long way from their target dates. This means funds dated from 2045 to 2070. This will happen over the next few years, and we will target an allocation of around 15% in our LTAF in funds dated from 2050 to 2070 and around 11% for the 2045 fund. The remainder will be invested in global shares.

While we believe private assets have potential benefits for members of our pension schemes, these investments can be harder to buy and sell. They can also take longer to achieve the returns that we believe are possible.

As members cannot normally access the money in their pensions before the age of 55 (due to rise to 57 in 2028), we have put private assets in funds that are a long way from the target date so there is more time for them to deliver the growth we are aiming for.

This also means that when members reach an age when they can start to think about retiring, their money will be invested in funds that can be sold more quickly and easily.

While the funds’ overall goal of long-term growth isn’t changing, there will be a few small changes to the detail of the investment objectives to allow us to access private assets. The sentences with changes are shown below:

In addition, a part of the portfolio may invest in private market investments, such as Long-Term Asset Funds (these hold long-term investments which are not publicly traded or may otherwise not be readily transferable or sold). The fund aims to grow your pension pot by taking more risk when further from retirement by investing predominantly in global shares. Between 8-12 years from the fund’s target date, it gradually reduces risk by investing in bonds (government and non-government). The asset allocation changes more dynamically the closer it gets to the target date.

When you’re reading this, it is important to keep in mind that bond investments still carry risk. The level of this risk can be higher in volatile markets, during periods of unpredictable and sometimes sharp price and interest rate movements, which means the value of your investments can fall in value dramatically during those periods.

Investing in private assets gives FutureWise greater access to markets, including early-stage companies that have not yet been listed on a public exchange. In many cases, these companies can be high-growth and disruptive technologies that offer significant potential. Our investment selection process also looks at private asset investments that focus on key global challenges, such as healthcare, financial inclusion, renewable energy, sustainable logistics and transport, real estate regeneration and positive environmental change.

Private assets tend to be a lot more expensive to invest in than other types of investments. We have managed to keep costs to a minimum, but there will still be a rise in the ongoing investment charge. This will be around 0.01% increase for the entire FutureWise strategy for each 1% of it that is invested in the LTAF.

This means an increase of 10p for every £1,000 invested in FutureWise where there is exposure to the LTAF. We believe private assets have the potential to produce higher levels of growth after this higher charge has been taken into account, but this is not guaranteed.

This also means that the ongoing investment charge for a FutureWise Target Date Fund will reduce as exposure to the LTAF reduces during the period between 20 years to the target date and 10 years to the target date.

Here are examples of how the yearly ongoing investment charge can change, as we invest more of a Target Date Fund in the LTAF. It shows the percentage increase and a pounds and pence figure for every £10,000 invested in FutureWise.

The table above shows how charges increase as the allocation increases. The total allocation for 2070-50 is 15% and for 2045 is 11%. The 2045 fund will invest slightly less in the LTAF at each stage than the other funds as it’s closer to its target date.

Please note that the figures are approximations and the rate of allocation will vary over time. The final allocation may be slightly more or less than the figure shown, as it will depend on the market situation and is likely to change over time.

Although the types of risks are changing slightly, the overall level of risk and the risk rating for your Target Date Fund will be staying the same.

We take sustainability very seriously in FutureWise and this won’t change with our investments in private assets. FutureWise includes investments with carbon reductions, exclusions and ESG (environmental, social and governance) integration, as well as using our in-house ESG ratings to assess any funds we are thinking of investing in.

In addition, our investment selection process looks at private asset investments that focus on key global challenges, such as healthcare, financial inclusion, renewable energy, sustainable logistics and transport, real estate regeneration and positive environmental change.

FutureWise funds will start to move out of private assets when they are around 20 years to the target date and this process should finish around ten years to the target date. This means the introduction of private assets doesn’t affect members when they are close to retirement.

It takes time to invest in private assets and we want to include them in FutureWise in a thoughtful way. That’s why we will be gradually introducing private assets into FutureWise over the next few years from the first three months of 2025.

We will gradually increase the charge as we gradually add private assets to FutureWise. This ensures you only see an increase in charges if you are accessing private assets. It will be in line with the amount each fund holds in private assets at that stage of the process, so you only pay for the private assets held in your Target Date Fund.

You don’t have to do anything, as we designed Target Date Funds to make changes like this easy to introduce. There will be no freeze on your account during the process and you can see how your fund is changing by checking the factsheet.

If you don’t like this change, you are welcome to explore our self-select range. This features a number of funds with different investment approaches. You can invest in as many of them as you wish to build a retirement portfolio that suits your goals. If you do this, please remember to keep an eye on your portfolio and update it when your needs change.

If you cannot find an alternative investment from our self-select range that suit your needs and wish to transfer out to another provider, you may do so but it’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you compare the benefits, charges and features offered, including any exit charges, terminal bonuses or protected tax-free cash entitlements. You can find out more by reading our transfer factsheet and should speak to an authorised financial adviser if you are unsure about proceeding.

No, you won’t see any changes on your account. The only differences will be on the investment factsheet for your Target Date Fund, and any other documents associated with it. These will include information about private assets, your allocation to them and how this allocation will change over the years ahead.